Corporate Earnings: Facts and Fiction

Corporate Earnings: Facts and Fiction
Lev, Baruch
2003-06-01 00:00:00
abstract Manipulated earnings played a central role in the slew of corporate scandals which surfaced during the last three years. This article focuses on the vulnerability of earnings to manipulation by managers: it surveys the empirical record of manipulation, their major objectives, and the means of manipulation. It then focuses on the major source of earnings manipulation--the multitude of estimates and subjective judgments underlying the comutation of earnings. The article accordingly concludes with a proposal to curb manipulation by requiring managers to routinely compare key estimates with ex post realizations, and revise earnings in case of large deviations.
http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.pngJournal of Economic PerspectivesAmerican Economic Associationhttp://www.deepdyve.com/lp/american-economic-association/corporate-earnings-facts-and-fiction-h2B5CilniR

Abstract

abstract Manipulated earnings played a central role in the slew of corporate scandals which surfaced during the last three years. This article focuses on the vulnerability of earnings to manipulation by managers: it surveys the empirical record of manipulation, their major objectives, and the means of manipulation. It then focuses on the major source of earnings manipulation--the multitude of estimates and subjective judgments underlying the comutation of earnings. The article accordingly concludes with a proposal to curb manipulation by requiring managers to routinely compare key estimates with ex post realizations, and revise earnings in case of large deviations.